Thread by @jchervinsky

1/ The BlockOne & Nebulous enforcement actions could be the most important moves from the SEC since June 2018, when Bill Hinman said bitcoin & ether aren't securities.

Call me crazy, but I think the SEC believes EOS & Siacoins aren't securities either. That's huge. Here's why.

2/ Background.

The SEC settled enforcement actions yesterday against BlockOne for $24 million (sec.gov/news/press-rel…) & Nebulous for $120,000 (sec.gov/enforce/33-107…).

Not coincidentally, yesterday was the last day of the SEC's fiscal year, which usually means big news.

3/ The SEC has settled a number of enforcement actions against token issuers before now, such as Paragon, Airfox & Gladius.

Still, yesterday's actions break new ground: EOS is the first target with a "top ten" market cap & Sia is the first from entirely before the DAO Report.

4/ Both actions focused on whether the tokens were securities at the time of sale, *not* whether they're securities today.

The BlockOne case dealt with the ERC-20 token that later converted into EOS. The Sia case dealt with Sianotes, which converted into Siafunds (not Siacoins).

5/ The fact that neither action addressed EOS or Siacoins in their present condition is critically important.

For starters, it supports the prevailing view among crypto lawyers that tokens aren't automatically securities just because they're sold in a securities transaction.

6/ In other words, it's possible to sell an investment contract (a security) that gives owners the right to receive tokens in the future (not securities).

This is a huge win for the SAFT model, & it's not the first one. Here's how Bill Hinman put the same concept last year:

7/ Don't get carried away, though.

You can't escape the law just by using a SAFT or "investment contract token" that converts into a new token. As the Sia case shows, the new token could be an investment contract too, making the conversion a regulated securities transaction.

8/ More importantly, I think it's reasonable to infer that the SEC believes EOS & Siacoins are not securities as they exist today.

This wasn't said explicitly so don't take my word for it, but it's hard to imagine these settlements happening like this if the SEC felt otherwise.

9/ Three things make me think the SEC cleared EOS & Siacoins.

First, the SEC rarely pursues multiple actions against the same defendant for violations arising from the same set of facts. If the SEC thought EOS or Siacoins were securities, I'd expect to see it in the settlements.

10/ Yes, in theory the SEC could go after BlockOne or Nebulous for a second enforcement action, but that'd be unusual.

The SEC could also go after someone else -- e.g., are the EOS block producers a general partnership with regulatory obligations? -- but that'd be unusual too.

11/ Second, in other crypto actions where the SEC believed the tokens at issue were still securities, the settlements clearly said so.

Take Paragon, for example. There, the SEC required Paragon to register PRG tokens as securities & make disclosures under the 1934 Act.

12/ The SEC also required Paragon to pay refunds to ICO participants. The Airfox & Gladius settlements were the same.

If the SEC thought EOS & Siacoins were securities, I'd expect to see these conditions in yesterday's settlements, but all of them are conspicuously absent.

13/ Third, Nebulous says explicitly that "[t]he SEC thoroughly examined Siacoins during the course of their investigation" & "did not take any enforcement action with respect to the Siacoin token or any current activity on the Sia network[.]"
support.sia.tech/article/77d2c7…

14/ I'm sure Nebulous carefully crafted this message to avoid saying "the SEC has cleared Siacoins" -- their lawyers are too sharp to let them go that far -- but I'm comfortable drawing the inference they obviously suggest:

If the SEC thought Siacoins were securities, we'd know.

15/ As far as I'm aware, BlockOne hasn't said if the SEC examined EOS as part of its settlement process.

I'll refrain from speculating, but I will say BlockOne had phenomenal counsel in its corner too & I'd be surprised if they took a settlement that left EOS an open target.

16/ I've often talked about how the SEC likes to give "guidance by enforcement," defining appropriate conduct through prosecution rather than rulemaking.

Well, yesterday's settlements seem like "guidance by (lack of) enforcement" to me.

I'm just reading tea leaves, though. 🤷‍♂️

17/ What if the SEC really does believe EOS & Siacoins aren't securities?

Then these tokens could represent minimum industry standards for negating the Howey test & avoiding securities regulation -- models against which other projects measure their "sufficient decentralization."

18/ If that's true, then these settlements signal the end of existential securities risk for tokens issued before the DAO Report.

Good. No matter what you think of these tokens, I hope we can agree that the SEC shouldn't pick winners & losers in crypto. Let the market decide. 📉

19/ That said, the SEC certainly won't be so lenient with future token sales.

Sure, there's still some regulatory uncertainty on the bleeding edge, but if you're selling a token to fund development of a new network, there's little room to argue lack of clarity as a defense.

20/ Which brings me to the elephant in the courtroom: Kik.

What can I say that hasn't been said already? Contrasted with the Kik lawsuit, yesterday's settlements perfectly illustrate the SEC's consistent message to our industry: "work with us or perish."

https://twitter.com/jchervinsky/status/1135972297087602691?s=20

21/ Finally, did BlockOne get off easy with a $24 million fine on a $4 billion raise? Maybe, maybe not. It depends how much was raised from US investors.

But more importantly, if you were hoping the SEC would destroy all the coins you hate, you're officially out of luck.

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